a buyer or seller's agreement to enter into a contract
interest that you have accumulated on your loan but not yet paid to your lender. It is based on your loan's principal balance and mortgage rate.
adjustable rate (ARM)
A loan with an interest rate that changes periodically during the life of the loan, based on fluctuation in the market. Most ARMs have a rate cap that limits the amount that the interest rate can change. Also known as a variable rate mortgage.
The gradual repayment of a loan over a period of time. During the earlier years of the loan, most of each payment is applied toward the interest. During the final years of the loan, payment amounts are applied almost exclusively to the remaining principal.
annual percentage rate (APR)
The annual cost of a loan to a borrower. Like an interest rate, the APR is expressed as a percentage. Unlike an interest rate, it includes other charges or fees, such as mortgage insurance, closing costs, discount points, and loan origination fees, to reflect the total cost of the loan.
Nonrefundable fees paid when you apply for a loan. These fees may include charges for items such as a credit profile or a property appraisal.
An independent, professional estimate of the value of a property. Lenders usually require an appraisal to ensure that the mortgage loan amount is not greater than the value of the property.
The increase in the value of property over time. Important factors in a home's appreciation are its location, condition, and the selling price of similar homes in the area.
The value of a property established by a public tax assessor. This is used to determine property taxes.
An amount equal to 1/100th of a percentage point.
An individual who applies for and receives funds in the form of a loan. The borrower, also known as mortgagor, is obligated to repay the loan in full under the terms of the loan.
This is when supply is greater than demand, making conditions more favorable for the buyers.
This is a new loan that is larger than the remaining balance on your current mortgage. The borrower usually gets the excess amount in cash, which can be used for home improvements, debt consolidation, or any other purpose.
certificate of eligibility
A document issued by the federal government that certifies a veteran's eligibility for a Department of Veterans Affairs (VA) loan. Also known as a Certificate of Veteran Status.
certificate of title
A certificate provided by a qualified source, such as a title company or attorney, that shows who a property belongs to.
The time and place at which all documents for your loan are signed, dated, and notarized. Also known as the settlement, it is the conclusion of your real estate transaction.
Also known as settlement costs, these are fees charged for services that are required to process and close your loan application. Costs may include title fees, attorney's fees, recording fees, appraisal fees, discount points, title insurance, and credit report charges. They are typically about 3% of your loan amount and paid at the closing.
A person who, along with you, assumes equal responsibility for repayment of a loan and is fully obligated under the terms of the loan.
An asset used for securing the repayment of a loan. When you get a mortgage, your home is considered collateral. The borrower risks losing the asset if the loan is not repaid.
comparables or comps
Recently sold properties that have similar sizes, locations, and amenities to the property being considered for a mortgage. Comparables help an appraiser determine the fair market value of a property.
A mortgage loan that meets all the requirements to be eligible for purchase by investors such as Fannie Mae and Freddie Mac.
A condition that must be satisfied before a contract is legally binding. When buying a home, two common contingencies are that the house must pass inspection and that the borrower must be approved for a loan.
Any type of mortgage that is not insured or guaranteed by the federal government. A conventional loan can be for conforming or non-conforming loan amounts.
A statistical number that evaluates a consumer's creditworthiness and is based on credit history. Lenders use credit scores to evaluate the probability that an individual will repay his or her debts.
When someone takes out a new loan to pay off a number of liabilities and consumer debts. In effect, multiple debts are combined into a single, larger piece of debt, usually with more favorable payoff terms: a lower interest rate, lower monthly payment or both.
A document that legally transfers ownership of real estate from a seller to a buyer.
The amount of cash a buyer pays toward the purchase of a home to make up the difference between the purchase price and your mortgage loan. Down payments typically range between 5% and 20% of the sales price.
The debt-to-income (DTI) ratio is a personal finance measure that compares an individual's debt payment to his or her overall income. DTI is calculated by dividing total recurring monthly debt by gross monthly income, and it is expressed as a percentage.
Equal Credit Opportunity Act (ECOA)
A federal law that requires lenders and other creditors to make credit available without discrimination based on race, color, religion, national origin, sex, marital status, age, or receipt of income from public assistance programs.
The difference between the appraised value of your home and your outstanding mortgage balances and other liens.
Funds to be held in trust by a third party until specific conditions are met.
fair market value
The amount a property would sell for on the open market. It is usually determined by an appraisal.
A government-sponsored enterprise that buys and sells residential mortgages that conform to the guidelines it has established. Loans bought and sold by Fannie Mae are called conforming mortgages. It is also referred to as Federal National Mortgage Association.
An FHA loan is a mortgage issued by federally qualified lenders and insured by the Federal Housing Administration (FHA). FHA loans are designed for low-to-moderate income borrowers who are unable to make a large down payment.
A three-digit number ranging from 300 to 850. These scores are largely based on your credit reports and can help creditors assess how likely you are to repay debt. The higher your FICO score, the lower credit risk you present.
A home loan where the interest rate does not fluctuate for the entire term of the loan. This allows the borrower to accurately predict their future payments.
A legal remedy for non-payment of a mortgage debt. The lender takes and sells the property to cover the amount owed. If the amount is not enough to fully repay the loan, the borrower may continue to owe the lender the difference. If there are remaining proceeds, they are returned to the borrower.
The smaller of two government-sponsored enterprises that buy and sell residential mortgages that conform to the guidelines it has established. It is also known as Federal Home Loan Mortgage Corporation.
A government-owned corporation within the U.S. Department of Housing and Urban Development (HUD). Also known as Government National Mortgage Association, GNMA assumed responsibility for the special assistance loan programs formerly administered by Fannie Mae.
home equity line of credit (HELOC)
A line of credit secured by the borrower's residence. It is often used for home improvements, debt consolidation, tuition, or other expenses.
Insurance to protect your home against damage from fire, hurricanes, and other catastrophes.
U.S. Department of Housing and Urban Development (HUD) is a government agency responsible for the implementation and administration of housing and urban development programs. The FHA within HUD insures home mortgages made by lenders and sets minimum standards for FHA loans.
A benchmark rate used by lenders to set adjustable rate mortgage (ARM) interest rates. For example, the London Interbank Offered Rate, or LIBOR, is based on five currencies.
The annual cost of a loan to a borrower, usually expressed as a percentage.
interest rate cap
limits the amount an ARM rate can rise during an adjustment period.
A loan for which you pay only the interest due for a portion of the loan term. This lowers your periodic payment but does not decrease your principal balance on the loan.
Property that is purchased to generate rental income or to be sold once it has appreciated in value.
A form of home financing for whose amount exceeds the conforming loan limits set by the Federal Housing Finance Agency (FHFA). As a result, unlike conventional mortgages, it is not eligible to be purchased, guaranteed or securitized by Fannie Mae or Freddie Mac.
An individual or company that makes funds available for borrowing.
The legal claim of a creditor on a borrower's property, to be used as security for a debt.
A contract where the lender stipulates terms and conditions required for the borrower to receive a loan.
Loan origination fee
A charge for originating (processing, documenting, administering, underwriting, auditing, and funding) a home loan. It can be a flat fee or a percentage of a loan amount.
The amount of time a lender has agreed to secure an interest rate for your loan.
The loan-to-value (LTV) ratio is a financial term used by lenders to express the ratio of a loan amount to the value of a property. It is expressed as a percentage.
A legal agreement between a borrower and a lender, giving the lender a lien on real estate to secure repayment of a loan. Mortgage loans generally run from 10 to 30 years, after which the loan is required to be paid off.
Mortgage Insurance Premium
Mortgage Insurance Premium (MIP) is an insurance policy used with FHA loans if your down payment is less than 20%. The FHA assesses either an upfront MIP at the time of closing or an annual MIP that is calculated every year and paid in 12 installments.
A loan that doesn't conform to guidelines established by Fannie Mae or Freddie Mac. See Jumbo loan.
A fee charged by a lender to cover certain processing expenses in a new loan application. It's usually a percentage of the total loan and generally between 0.5 and 1%.
An acronym for principal, interest, taxes, and insurance. For most borrowers, PITI is the entire mortgage payment.
An amount paid to the lender, typically at closing, to lower the interest rate. A point is equal to one percent of the loan amount.
a lender's conditional agreement to lend a specific amount of money to a borrower under a specified set of terms.
A non-binding process where a prospective borrower provides financial and other information, such as employment history and proposed collateral, in order for the lender to estimate how much the borrower may obtain for the purchase of a home.
The amount of money borrowed on a loan. Monthly interest due is calculated by multiplying the principal balance by the monthly interest rate.
Private Mortgage Insurance (PMI)
If you have a conventional loan, this insurance protects the lender if you default on your loan. If your down payment is less than 20%, many lenders will require you to pay private mortgage insurance.
A fee charged to cover the administrative costs of processing a loan.
A legal document between the seller and the buyer describing the terms and conditions under which a property will be sold. Also known as an agreement of sale or sales agreement.
Calculations that are used to determine whether a borrower can qualify for a mortgage. They state the maximum housing expense to income ratio and the total debt to income ratio that a borrower can have in order to qualify for a loan.
The percentage used to calculate the interest charge on a loan. Also referred to as the interest rate or loan rate.
A commitment issued by a lender to a borrower guaranteeing a specific interest rate for a specified period of time. When a rate lock expires, you'll need to contact your lender to establish a new rate lock prior to closing your loan.
To take the remaining balance of a mortgage and establish a new period of amortization after which the principal balance will be zero. This typically happens at the end of the term of an interest-only loan.
Paying off your existing loan with the proceeds from a new, better loan, generally using the same property as collateral. The new loan typically has a lower interest rate, a lower monthly payment, replaces an adjustable rate with a fixed-rate loan, or increases the size of the loan in order to take the difference in cash.
When a homeowner can no longer afford to make mortgage payments and their home is worth less than they owe, a short sale allows them to sell the home to pay off the mortgage. In a short sale, the lender agrees to accept an amount less than is actually owed on the loan. Short sale homes are still owned by the individual homeowner, while foreclosures are owned by banks.
The number of years it will take to pay off a loan.
A document that proves evidence of an individual's ownership of property.
An agency that verifies ownership of real property through a thorough investigation. They look for discrepancies or undiscovered liens and will issue title insurance to the lender after the title is deemed clear.
A policy that guarantees that an owner has title to a property and protects against issues that would affect legal ownership of the property.
The process a lender uses to determine if the risk of offering a mortgage loan to a particular borrower under certain parameters is acceptable. The decision is based on credit, employment, assets, and other factors.
A mortgage that is guaranteed by the Department of Veteran Affairs (VA) for qualified veterans of U.S. military forces.
variable rate mortgage
A mortgage in which the interest rate may fluctuate or change periodically based on an index such as the prime rate. Also known as an adjustable rate mortgage.
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